Supplier Financing For Companies That Sell To Retailers

Getting a contract from a large retailer can be very exciting for any business owner. It can certainly be a defining moment in your career – if you are prepared for it. But large contracts can also be a double edge sword that can hurt a business that is not well prepared. They can tie up your resources, preventing you from servicing other orders – or other clients.

In this article, you will learn:

  1. Common financial challenges of working with large retailers
  2. Why merchandise and service transactions are funded differently
  3. Three supplier financing options to grow your business

Large retailers usually pay slowly

One of the biggest challenges of becoming part of the supply chain of a large retailer is that they often pay their invoices in 30 to 90 days. Suppliers must offer sales terms to large retailers as a condition of doing business with them. Large retailers like getting terms because it improves their cash flow. They get to sell your merchandise (or use your services) for a few months before having to pay for them. It’s similar to an interest free loan.

This creates a problem for small and midsize businesses because they have to cover all their expenses while waiting for invoices to pay. Many companies can’t afford to do that – not without compromising their ability to pay their own expenses.

There are cases were the retailer will pay you quickly, but often in exchange for an early payment discount. However, if that doesn’t work, then your company must use supplier financing to cover operations.

Merchandise vs. service sales

Companies that sell services usually have a single problem. They need funding to keep up with payroll while waiting for client payments. Companies that sell merchandise are part of a supply chain that faces a a more complex dilemma. They have the problem of dealing with slow payments. However, they also have to deal with large orders.

Large orders can be challenging if you are not prepared for them. You must have enough resources to pay your suppliers. Some of these suppliers may demand an upfront deposit, further affecting your cash flow.

Even if you have the funds to cover a large order, your company may not have funds to cover additional orders until the first order has been paid. This can create serious supply constrains. However, you can solve these issues and grow the business, if you use the right supplier financing solution.

Supplier financing alternatives

Supplier financing is designed to help companies manage their cash flow problems. When used correctly, they can provide funds to cover company expenses and to handle larger orders. In this section, we discuss three supplier financing solutions:

1. Invoice factoring

Invoice factoring can help your company if your biggest challenge is that you are waiting 30 – 60 days to get paid by the retailer, and you need to get paid sooner. It allows you to finance your invoices, which provides immediate cash flow.

Invoices are usually financed in two installment payments. The first installment covers 85% of the invoice and is advanced as soon as the retailer receives you product or services. The remaining 15%, less fees, is advanced once the retailer pays for the invoice in full.  Factoring is easier to get than conventional financing and offers great flexibility. The size of the line can increase are your qualified sales to retailers grow. Learn more about invoice factoring.

2. Purchase order financing

Purchase order financing can help companies that are selling merchandise to large retailers. It helps you pay for vendor costs associated with large orders. This allows your suppliers to manufacture and deliver the goods, and allows your company to fulfill the order. This solution can be used only by companies that:

  1. Use a single supplier to manufacture their product
  2. Have a gross margins of 20% or more
  3. Have orders of at least $50,000

Learn more about purchase order funding and  how it works.

3. Asset based lending

Asset-based financing is a an intermediary solution that is offered to companies that have outgrown their invoice factoring facility, but are not able to qualify for a business line of credit yet. The lending structure is designed to fit the assets that are being funded. Accounts receivable and inventory are funded using a revolving line of credit structure. Equipment and other assets are usually financed with a term-loan structure. Learn more about asset-based financing.

Guaranteed sales clauses

One thing to keep is mind is that some contracts have a guaranteed sales clause. This type of clause gives the retailer the option to return any unsold product back to you – usually in the form of a charge back. This will impact your chances of getting funded since most supplier financing solutions use accounts receivable as their main collateral.

Supplier financing works with quality retailers

Supplier financing can work with most quality retailers, as long as your order qualifies for funding. It can work with suppliers of great retail brands such as:

Looking for a financing quote?

Working with large retailers an need funding? We are a leading provider of factoring, purchase order funding and asset-based financing. For a quote, please fill out this form or call (877) 300 3258.


Disclaimer: Note that we are not affiliated and do not represent any of the brands listed in this article (including: Costco, Dollar Tree, Bed Bath and Beyond, TJ Maxx, Home Depot, and Walmart). This article is provided for informational purposes only. If you need business or financial advice, consult a professional.